2014 QCCQ 7778, 2014 QCCQ 7778

3005411 Canada inc. (Dinamar Construction) c. 3478351 Canada inc. 2014 QCCQ 7778 COURT OF QUEBEC CANADA PROVINCE OF QUEBEC DISTRICT OF MONTREAL TOWN OF MONTREAL Civil Division Nos: 500-22-190104-128 500-22-190105-125 DATE: August 15, 2014 ______________________________________________________________________ BY THE HONOURABLE DIANE QUENNEVILLE, J.C.Q. ______________________________________________________________________ 500-22-190104-128 3005411 CANADA INC. d.b.u.n. of DINAMAR CONSTRUCTION Plaintiff v. 3478351 CANADA INC. and PAUL MASSIE Defendants 500-22-190105-125 9152-5444 QUÉBEC INC. d.b.u.n. of CRÉATIONS RENAISSANCE Plaintiff v. 3478351 CANADA INC. and PAUL MASSIE Defendants ______________________________________________________________________ JUDGMENT ______________________________________________________________________ [ 1 ] Plaintiff 3005411 Canada Inc., doing business under the name of Dinamar Construction ( Dinamar ) claims from the Defendants, the cost of the renovations made to corporate Defendant’s place of business, in the amount of $60,109.78, as detailed in its Re-amended Introductory Motion. [ 2 ] Plaintiff 9152-5444 Québec Inc., doing business under the name of Créations Renaissance ( Renaissance ) also claims from the Defendants the cost of the furniture supplied to corporate Defendant’s place of business, in the amount of $17,612.40, as appears from its Re-amended Introductory Motion. [ 3 ] Corporate Defendant 3479351 Canada Inc. did business under the name of Bourbon Street Club and as of July 2011, under the name of Club Paul Stevens (the Club ). [ 4 ] Defendant Paul Massie ( Massie ) is the sole shareholder of the Club. [ 5 ] Two actions were instituted by Dinamar and Renaissance that were joined and proceeded under the same evidence. [ 6 ] The Club is not represented by attorney.

It did not appear nor contested the actions of Dinamar and Renaissance, therefore, judgment will be granted in their favour against the Club. [ 7 ] Dinamar and Renaissance also claim from Massie personally, on the grounds that he personally guaranteed to them the sums owed by the Club. [ 8 ] In addition, Dinamar and Renaissance argue that when the Club concluded the contract with them it was insolvent, Massie knew it and never revealed this fact to them, which renders him personally liable towards them. THE FACTS [ 9 ] The Club was located on Des Sources Boulevard and operated for 17 years.

Massie operated a restaurant and a bar, in premises rented from Canderel Management. It was the biggest tenant on that street. [ 10 ] When the Anti-Smoking Law was passed in 2009, banning smoking in bars, the Club’s business started to decline. Massie states that changes had to be made to the concept, if the Club was to stay in business and remain profitable. In 2011, he merged both operations into a supper club.

[ 11 ] Ms. Luisa Gianino, Senior Leasing Manager for Canderel Management, explains that Massie asked the latter to financially contribute in creating this new concept. [ 12 ] On April 5 th , 2011, an Amended Lease was concluded [1] . Canderel agreed to waive the February and March rent and to defer the April and May 2011 rent, as appears from articles 2 and 3 of the Lease. [ 13 ] Moreover,

article 4 of the Lease, states that the tenant undertakes to renovate the premises and the landlord undertakes to contribute $47,351.09, plus taxes to be paid following the completion of the additional improvements. [ 14 ] Following the renovations that were completed sometime in May 2011, Massie realized that the Club could not continue operating. He closed the premises in September 2011.

In November 2011, in its demand letter [2] , Canderel informs the Club that the locks have been changed and that it must remove its equipment by November 11, 2011. [ 15 ] Mario Lecomples, sole shareholder of Renaissance and part owner of Dinamar with his partner, Brian Chrystal, confirms that a contract was concluded with the Club on March 27, 2011 [3] by which Dinamar undertook to make renovations to the premises for a budgeted price of $60,000, plus taxes. [ 16 ] As for Renaissance, no written contract was concluded. It undertook to deliver booths and built in furniture at a cost of $17,612.40. [ 17 ] Mr.

Lecomples states that, although the Club was not supposed to be in arrears for more than $25,000, when one of its cheque was returned for insufficient funds, the Club owed over $130,000. [ 18 ] Massie explains that he was waiting for the payments from Canderel and the reimbursement of taxes. $62,140.91 was paid between February 25 and May 3, 2011 with cheques drawn on a joint account of Massie and his wife, as well as a cheque of $20,000 from his wife’s personal account [4] .

In addition, on May 4, 2011, the Club issued a cheque to Dinamar of $15,000 [5] and on June 30 th , 2011, another $2,000 was paid [6] . [ 19 ] Mr. Lecomples insists that Massie told him not to worry, that he would get his money. He knows Massie was waiting for the work to be finished, get the invoices to claim the money from Canderel. [ 20 ] As for Brian Chrystal, he was responsible for the supervision of the work and made many visits to the site. He only met Massie once, in June 2011, as he dealt with Massie’s partner, Steve Traynor. [ 21 ] Mr.

Chrystal also says that Massie told him not to worry that he would get paid. He adds that, as the cheques were drawn on Massie’s personal account, he assumed he would personally pay Dinamar and Renaissance.

THE ANALYSIS [ 22 ] The Court has no hesitation in concluding that both Dinamar and Renaissance did the work and that the Club is indebted towards them for the amounts claimed. [ 23 ] The only question in issue is to decide if Massie is personally liable, either because he personally guaranteed the amounts owed by the Club or because his conduct constitutes an abuse of right or because he acted in bad faith. 1. Did Massie personally guarantee the obligations of the Club to Dinamar and Renaissance? [ 24 ] MM. Lecomples and Chrystal met Massie only once. As already mentioned, Mr.

Chrystal, who was present on the construction site on a daily basis, only dealt with Massie’s partner, Mr. Traynor. [ 25 ] Massie did not sign a written guarantee and MM. Lecomples and Chrystal, in their testimony, never said that Massie specifically stated that he would personally guarantee the amounts owed by the Club. Both mentioned that Massie said Dinamar and Renaissance would get paid or that Massie would do his best for them to get paid. Moreover, when Mr.

Lecomples was asked if he did not expect to get paid from the proceeds of the restaurant, he answered it was possible, but he was not the Club’s banker. [ 26 ] The Court therefore concludes that Massie never personally guaranteed the indebtedness of the Club towards Dinamar and Renaissance. 2. Is Massie personally liable to Dinamar and Renaissance because of his conduct? [ 27 ] In the decision of Publicité postale premier choix c.

Groulx & als [7] , this Court reviews the principles surrounding the personal liability of a shareholder. [ 28 ] The fundamental rules are that a contract has a relative effect and that a company has a distinct personality form its members: Art. 1440. A contract has effect only between the contracting parties; it does not affect third persons, except where provided by law. Art. 309. Legal persons act through their organs, such as the board of directors and the general meeting of the members. [ 29 ] There are however exceptions to these principles.

Namely, the general obligation imposed on everyone to act in good faith, as provided by articles 6, 7 and 1375 C.C. Q , or when a fault is committed, as stated in

article 1457 C.C.Q. or by lifting the corporate veil, when the conduct of a shareholder is equivalent to an abuse of right, fraud or contrary to public order, as provided in

article 317 C.C.Q .

[ 30 ] In Publicité postale premier choix , the Court examines the exceptions to the principle that there is an impenetrable separation between a legal person and its members: [49] Bien qu’il faille respecter l’étanchéité de la personne morale, il doit exister un recours dans le cas où celle-ci est employée non plus dans le cours normal de ses activités, mais uniquement comme paravent, pour le bénéfice exclusif d’autrui. [50] La responsabilité des personnes composant la personne morale sera retenue non pas parce que la compagnie est insolvable et que l’administrateur le sait, au sens de l’arrêt LANOUE [8] , mais parce qu’il sait que l’insolvabilité est sans issue et que le tiers avec qui il transige ne sera pas payé. [ 31 ] For example, a majority shareholder can be held personally liable if he fails to disclose the insolvency of the corporation [9] or commits a fraud [10] or acts in bad faith equivalent to an abuse of right [11] . [ 32 ] In the present matter, it is not sufficient to state that the Club had financial difficulties and that it stopped doing business some four months after the renovations.

More is required. [ 33 ] For example, Dinamar and Renaissance had to argue and prove that Massie acted in bad faith and made false representations to them or knowing that the Club was insolvent, prior to concluding the contract with them, hid this fact. [ 34 ] Dinamar and Renaissance did not prove these allegations. [ 35 ] From the testimony of MM. Lecomples and Chrystal the Court concludes that Massie assured them they would be paid, but never gave them the assurance that he would personally pay the debts of the Club.

Massie was convinced that the new concept would once again generate profits and it is with these profits he would pay the work done by Dinamar and Renaissance. [ 36 ] When Massie undertook the renovations, the Club had set a budget, which eventually was exceeded by 100%. He also states he had more than $100,000 in his bank account to cover the cost of the work, plus payments to receive from Canderel Management. This testimony was not contradicted. [ 37 ] When a company fails to pay its merchandise or goods ordered or fails to respect its financial obligations, generally it is because of financial difficulties.

Also it is not unusual for a company, under those circumstances, to cease doing business shortly thereafter. Would this mean that the majority shareholder would always be personally liable? The Court cannot accept this argument. More is required. [ 38 ] The shareholder must make false representations, must conduct himself in such a way that a court concludes he acted in bad faith or that his conduct constitutes an abuse of right. [ 39 ] In the present matter, Massie was hopeful the Club would again be profitable and would have no difficulty in paying the work done by Dinamar and Renaissance.

In hindsight, this may have been unrealistic, however, it does not constitute bad faith, abuse of right or fraud. FOR THESE REASONS, THE COURT : IN FILE 500-22-190104-128 GRANTS Plaintiff’s action against Defendant 3478351 Canada inc.; CONDEMNS the Defendant 3578351 Canada Inc. to pay to the Plaintiff 3005411 Canada Inc., the sum of $60,109.78, with interest, at the legal rate, plus the additional indemnity provided in

Article 1619 of the Civil code of Québec , as of November 26, 2011; WITH COST ; DISMISSES Plaintiff’s action against Defendant Paul Massie; WITHOUT COST . IN FILE 500-22-191105-125 DISMISSES Plaintiff’s action; CONDEMNS the Defendant 3578351 Canada Inc. to pay to the Plaintiff 9152-5444 Québec Inc., the sum of $17,612.40, with interest, at the legal rate, plus the additional indemnity provided in

Article 1619 of the Civil code of Québec , as of January 14, 2012; WITH COST ; DISMISSES Plaintiff’s action against Defendant Paul Massie; WITHOUT COST . __________________________________ DIANE QUENNEVILLE, J.C.Q.

Mtre Avelino De Andrade ZAURRINI AVOCATS Lawyer for Plaintiffs 3478351 Canada Inc. Mr. Paul Massie Defendants